Posts Tagged ‘insurance’

I have had three separate occurrences this past month for family members needing quick advice for a range of more serious and less serious healthcare conditions. Here in the UK, the National Health Service’s Accident and Emergency Departments have become the repository for all conditions and advice outside of normal UK working hours, irrespective of the urgency or severity of the condition. According to one enthusiastic A&E nurse in a London hospital, at a minimum 50% of patients don’t have a condition that warrants being there! We have a healthcare customer base that is

Increasingly uneducated about the resolution of minor and major health illnesses and injuries

Struggling with the increased automation in the healthcare system

Rapidly growing and drawn from very diverse backgrounds and cultures

Expecting greater access to world-class advice and near real-time resolution of all healthcare problems

Expecting free or near-free cost of advice and treatment

Reconciled by politicians that fear to speak out about the paucity of mass healthcare education

Comforted by a media that is only too keen to promulgate a sense of victim hood for a good headline

The response has been to rejig the supply of healthcare resources, the productivity of those resources and the automated processes. To channel all requests for help, outside of normal UK working hours, to emergency healthcare professionals, to ask them to enforce the prioritisation of all out-of-hours healthcare treatments, to perform to their best and to be on the front line taking the flak from patients and dependants frustrated at average wait times. Who would want to work in A&E?

Surely in this mobile-connected age there is a higher touch higher tech solution to the education, prioritisation, delivery of advice and resolution of illnesses and injuries? We are moving away from the archaic idea that every child gets the same textbook in school and in future embracing “adaptive learning”, where every child has materials updated in real time, customised to what they know and how they learn best. Using software to handle the basics and freeing children and teachers to spend the rest of the day interacting on group projects and personalised instruction. A back to the future revolution, not a dependence on online learning.

We have spent billions building “algorithms” that allow machines to ape human behaviour (artificial intelligence) but a tiny percentage of that on aiding humans to become smarter than the automation suppressing our talents and enthusiasm in the workplace. The NHS is but one example where we need to leverage technology to enhance, not replace us. To invest in human intelligence (customers, managers, employees and payors).

The same applies in almost every business. We suck the energy and life out of our employees and clients, asking them to perform basic activities without regard to the outcomes (onboarding clients, resolving complaints, adhering to redundant policies and procedures etc.). The automation is swamping their abilities to apply common sense, to provide outstanding customer service (speed and quality of response), to create loyal and “permanent” customers and in return obtain fulfilment from their work. How else explain the rising boredom levels in almost every professional workplace?

Yet executives in banks, insurance companies, professional service firms and others respond by deploying huge amounts of capital to harness big data and analytics, to make smarter artificial underwriting, investment and advisory decisions (models, augmented reality, robots and so on). A tiny slither of that amount on enhancing their own managers, employees and customers intelligence, and when they do, it is on prosaic “one size fits all” training programmes, where they have close to zero understanding of the return on investment. Consequently, huge swathes of the workforce, management and customers are ill prepared for the disruption.

If you are not convinced that education technology from the children’s nursery through the workplace and into senior living represents a huge growth business and investment opportunity, you are sleepwalking through life.

When you introduce two good friends that you know from two completely different walks of life, there is that pregnant pause in which both seek to find a common connection and language to build a relationship. To the introducer, it seems perverse that there would be a delay, you know both people intimately and you have thought long and hard before introducing them. So I liken the insurtech corporate venturing world today.

Inherently it makes sense that entrepreneurial tech businesses have the capability to transform venerable insurance businesses. In most cases there are shared values and a receptiveness to make a relationship work. Yet there is an uncertainty born of speaking different “languages” and the reality that operates in their respective sectors (resisting and embracing change, regulation, corporate bureaucracy and inertia).

Having assisted a number of businesses on both sides of the table, here is my current take:

The quantum of insurance tech money will double in the next 24 months. There will be a greater concentration of capital in the hands of a smaller number of powerful brands (VCs, CVCs and UHNWs), who are able to raise capital faster.

You will rarely hear about the failed insurtech investments but be certain 80% of the so-called strategic investments will never be strategic, in that those technologies are successfully adopted into the insurance corporate venturing unit’s mothership.

Only 50% of an insurance corporate venturing unit’s invested companies today will be their best corporate investments next year in view of internal and external changes.

A more formal insurtech investment ecosystem will arise with greater concentration in a smaller number of hubs (Silicon Valley, New York, London, Singapore) that foster innovative environments. If you are not “present” locally, as a service provider, you will not be in the game.

Speed will be as, if not more important a factor than the quality of the capital, for entrepreneurs in the best insurtech opportunities. Bad news, for insurance corporate venturing unitss with long decision-chains or timelines.

Insurance corporate venturing units that create a powerful gravity to their brand will triumph over those who are largely reliant on opportunistic investment ideas landing in their “inbox”. Heightened importance of peer referrals, networking, publishing, speaking, writing and so forth.

With increasing numbers of people in the insurtech ecosystem, there will be a filtering out of people (entrepreneurs, investors and others) who are truly centres of expertise and objects of interest. Having your CEO make blow-hard statements about his visit to Google, facilitating an insurance disruption event or thinking that merely pushing out generic position papers on your own or a third party’s platform will get you there, is a fool’s paradise.

Tech entrepreneurs that live at 35,000 feet and are beholden to the future without regards to the health of today’s insurance industry, today’s realities of marketing an early stage business and today’s decision-making are living in cloud cuckoo land.

If you hire a personal fitness trainer or financial adviser, you would reasonably expect that they visibly are the embodiment of the healthy lifestyle and prudent risk taking that they promote. If you hire a large consulting firm you would reasonably expect that they are the embodiment of the reinvention and innovation they promote. Specifically,

How does our brand stand out in a crowded market when our buyers don’t see the differences?

How do we bridge the gap between our existing buyers’ perception about the quality of our work (high) and their propensity to recommend and refer us to new prospects (low)?

Which area of the market should we stake out and leverage digital technology to transform our clients’ future?

That thought crossed my mind at the recent launch event of Source Global Research’s UK and global consulting market findings. The hard evidence suggests that many of these large firms don’t have the answers in respect of their own market. Buyers report close to zero differentiation across their service offering and a low propensity to recommend or refer these firms. The consulting firms themselves are directing marketing resources to the entirety of the market without regard to their ideal buyers, largely reliant on foot soldiers knocking on client doors and service offerings driven by production capability rather than client need.

Indeed, I walked away thinking that many boutique and solo consulting firms including my own are actually way ahead of many large global consultants. Forced by necessity, small entrepreneurial firms have created strong and clear value propositions, identified and directed limited marketing resources to their ideal buyers not every buyer, prioritised building a strong marketing gravity to their brand and created a range of offerings at increasing price points that are tightly customised to their target client’s needs. For once, the grass is indeed greener on the small guy’s side of the fence.

This isn’t an isolated phenomena. Clients of large advisory firms in global equities and fixed income research, investment banking, re(insurance) broking, private equity, private banking and so forth are coming to a conclusion that the large firms and traditional value chain is not working for their benefit. While small firms are creating new value propositions, new ways to attract clients, new ways to integrate high tech into the client experience and so forth, the larger players are largely falling back on trying to sell more of the same in more ingenious manners (leverage) and defending their turf. The trouble is that they don’t have watertight doors. Technology is rapidly providing faster and more impressive ways to apply knowledge to capital and human resources. Size alone is not a guarantee of future survival.

Everyone talks about “disruption” today as if it demands a new or unique response before, during or after an event. I don’t look at it that way. I see it that many large and mid-sized advisory firms in different sectors have got away from the marketing focus, discipline and resolve to compete effectively. They have layered complexity (bureaucracy) over what started out as a simple business with a simple marketing structure and process. The world has and will always change (new regulation, new technology, new capital sources, new competition will arise).

If they prioritise, hire and develop the requisite marketing skills, have their people do the right things, hold them accountable and reward them appropriately, they will have control and relevance. If they sail away from that imperative, they will have increasing insecurity and fear, which ultimately will lead to increasing mergers or worse, extinction.

Wyn Jenkins, Managing Editor of leading global insurance media publication, Intelligent Insurer, interviewed James about the 675% increase in capital flowing from global insurers into corporate venturing since 2013 in search of the next Uber.

The global marketing and technology firm, IDG, known for its’ research and surveys on success practices, has interviewed me for a piece on changing the self-talk and thinking amongst executives in large organisations and creating a meaningful environment for innovation to flourish in. Highly relevant for businesses experiencing sluggish growth and needing help with strategic redirection (hit the growth accelerator) or strategic reinvention (soar to the next level of growth).

Foreign “first time” entrants to the US financial services, insurance, investment management and asset management market would have you believe that they are starting from a disadvantageous position. My observation and experience working with countless foreign firms is they are often wrong but not for the reasons you imagine.

Your physical presence given the distance you have travelled will often elicit time made available on buyers schedules at very short notice. It is a courtesy rarely extended to US competitors unless there is a very compelling story.

The US market is a “mosaic” made up of diverse leaders and diverse businesses with often sharply different sets of “needs”. As a foreign entrant unencumbered by a historic presence, brand perception, legacy systems and sometimes, regulatory advantages, you are uniquely positioned to “unbundle” your service offering to address a specific need for your ideal clients that is tough for your US competitors to match.

There is an implied novelty amongst buyers with new foreign entrants. You have the advantage with a largely unknown brand to present fresh thinking, innovative ideas and appeal to customers and employees who want to be part of something “exotic” or different. Use it (marketing, presentations, client dialogue).

World view and international platform. Contrary to popular opinion US buyers are more open to global views of investment opportunity, alternative uses for excess capital and intellectual property than any time in history. With your origin and your “past” (experiences, culture, expertise) you instantly bring a perspective to the open-minded US buyer, capability and relationships that many of your domestic competitors cannot.

Money is made in the real world. Many of your domestic competitors can intellectualise about the transference of US approaches in a foreign market but they cannot talk with experience about what may happen to that money when it is invested. For example, a Pittsburgh investment management company would struggle to explain “first hand” to investors the perils of investing in a Tianjin rubber plant. If you are a Greater China private equity GP building a presence in the US, you would in all probability have far greater credibility.

You are not trying to “crack America”, you are trying to appeal to the maximum number of your ideal clients in the US market. You can take a more laser like approach to your marketing, sales, delivery and business model than many domestic competitors, who with a need to support expensive people, established offices and other overheads are forced to play in the “mass market”, to make it pay.

As a newcomer, you are not fighting internally lots of beliefs (past experiences, historic views) about “why” a particular approach will not work. You can focus on proving a new concept without the “drag” effect that inhibits many domestic competitors. In convergence opportunities with digital businesses, new forms of capital or new methods of distribution you can invariably move swifter, assuming you have the volition and support to do so. Don’t blow the opportunity.

McKinsey has cottoned on to what I have been saying for several years. The insurance sector’s obsession with data and analytics is irrelevant if the management of the businesses aren’t willing or able to change their beliefs and attitudes.

In a year when weekly landmark deals have rained down like confetti in all corners of the industry, it raises the following questions:

Why is the industry is so in love with hiring C-level executives from within?

If so many leaders are poorly qualified or unwilling to address business complexity, operating models, IT and performance management as McKinsey suggest, why aren’t Board Chairs and shareholders more assertive in casting a wider net?

What would it take to attract leaders with the skills and volition to challenge widely held beliefs and make meaningful changes that transform insurers’ operating performance?

Therein lies the key future challenge for the sector and the experts who are able to help answer those valuable questions will be able to charge whatever they want.

On the surface the logic would be obvious, Willis’s immediate competitors, AON and Marsh both own substantial professional services firms, Hewitt and Oliver Wyman. The future is largely being shaped by high-value advisory services and low-cost transactional broking and administrative services. That is where the easy comparisons stop.

Oliver Wyman largely operates as a separate “silo” with its’ own brand focus, leadership, culture and resources inside MMC. Collaboration is limited to a small number of “joint” client assignments.

Hewitt has been absorbed more comprehensively into AON’s brand offering, leadership and culture. The healthcare consulting has largely been transferred to AON’s transactional healthcare broking business. The Hewitt outsourcing business has undergone extensive changes. What exists of “Old Hewitt” today is largely a talent, rewards, retirement and investment consulting business.

Twinkle Eyes

Willis and Towers Watson had the advantage of getting know each other last year in the due diligence phase of the sale of Towers Watson’s reinsurance broking business (ultimately sold to JLT). At the time, JLT trumpeted a future collaboration with Towers Watson. Are we to presume that the JLT/TW collaboration has really proved underwhelming or were there hidden attractions for a Willis/TW merger that few in the public domain spotted? While surely welcome, the mention that ValueCapital, Willis’s activist shareholder, is supportive of the transaction, could be interpreted to mean that Willis was under pressure to consummate a deal with organic growth prospects hardly setting the pulse racing?

The Challenges Ahead

A “merger of equals” is the hardest type of deal to pull off. The first requirement to a successful merger is everybody is open to change. Yet both firms would be characterised by conservative leadership teams and cultures that more often than not have rejected change or accepted it with some reluctance, particularly in the era of Joe Plumeri.

Here are some fundamental questions that investors and analysts need to ask:

Would Willis Towers Watson be willing to abandon, for example, default labels such as investment consultant, treaty broker and political risk broker? The world is looking for expertise, it is not looking for a client issue to be wrapped in a broking, consulting or investment solution with the inevitable internal competition that does nothing to help the client. Would they be willing to rip up widely held beliefs about fee-setting (scrapping unethical hourly billed fees, a relic of audit firms) or contingent commissions?

What do the people within the new firm need to thrive? (very light on detail)

What are the benefits of this union to the customer? (very light in today’s announcement)

Do the leaders and people within each of the businesses truly believe in those benefits? (Fostering compliance or commitment to the “cause”)

Do they have people with the skills and volition in the real world to leverage Willis’s global distribution platform or articulate TW’s consulting proposition in the cherished mid-market? Are we going to see a TW expert called in by a Willis broker and vice-versa? (The unwelcome legacy of Willis’s foray into the US – HRH acquisition – has been a high dependency on the local broker’s trusting relationship and very rich producer incentive plans that do little for margin improvement)

To what extent is each firm’s current structure fundamental to the new firm’s profitable growth and success? (Abandon existing structure or selective tinkering. For example, TW’s prized asset Liazon is dependent on 640 indepdendent brokers who cannot reasonably expect to standby and hand opportunities to a competitor)

My experience and observation is that the combined firm will have some of the brightest and best people working in their respective fields (reinsurance, political/credit risk, capital markets, insurance consulting). They have thrived because they have had strong leaders willing to cut through the institutional bureaucracy and it has been in their self-interest to do so. On top of the Miller-Willis liaison, this is a high-risk foray and investors would be wise to ask the right questions of senior management.

As a footnote, the departure of Steve Hearn, Willis Deputy CEO, yesterday is incidental to the firm’s announcement today. It almost certainly has more to do with Hearn returning to his passion (wholesale broking) in a business where he can have a greater impact on its’ future.

Most of us when we get larger after a certain age, do so at our own peril (increasing obesity, great risk of heart and other serious illness). When CEO’s pronounce “scale” as an imperative for an acquisition strategy, why do I think it says more about their own fears and their inability to innovate successfully? Sure stronger balance sheets are desirable from a client’s perspective and it is easier to take risks when the pockets are deeper. Most obviously in sectors such as pharma, biotech and defence where the R&D lead times are many years and the risks with a new product exponentially higher. When I hear US health insurers (Anthem, CIGNA, Human and Aetna) pushing the same message, I draw breathe and ask:

Are the causes of your growth plateauing (or size) predominantly external or internal? (there is always a bias towards external when more often than not the reasons are internal)

What is the minimum level of growth in future without which your business would be in danger of becoming a marginal player? (It is relatively easy to be explicit about costs, it is much harder to articulate profitable growth. Why? Personal accountability.)

Why is “scale” the answer? (what unique resources, expertise, products and so on are available that only when combined successfully with the driving force in the new business would create a more impressive future for your firms’ key constituents – customers, shareholders, employees, healthcare facilities and physicians, regulators etc)

Investors are wise to not take the bait. There is a litany of businesses where “scale” is a soft excuse for simply stripping out cost and the acquiring CEO boosting their ego and pay packet. No business can dominate it is market alone without dramatic top line revenue growth. The fastest way to do that is to sell new products to existing customers and existing products to new customers. Let’s see the case in full technicolour before rushing to judgement.

The speed and quantity of information about publicly and privately run insurance and reinsurance businesses is at an all time high. Yet in the public arena, the quality of information generated by rating agencies, banking analysts, in-house investor relations and others is woefully inadequate. James looks at the work of banking analysts in this talk and asks why their questioning and analysis is so shallow and rarely forsees key industry events or trends until it is too late. James offers tips to analysts on how they can gather sharper insight from top management in the insurance sector and apply that to the knowledge of retail and institutional investors to make wiser investment decisions.